budget 2018: policy costings; · alcohol duties: freeze spirits, beer and cider in 2019 and set...
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Budget 2018: policy costings
October 2018
Budget 2018: policy costings
October 2018
© Crown copyright 2018
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1
Contents
Chapter 1 Introduction 2
Chapter 2 Policy costings 3
Annex A Indexation in the public finance forecasts baseline 49
2
Chapter 1
Introduction
This document sets out the assumptions and methodologies underlying costings for
tax and annually managed expenditure (AME) policy decisions announced since
Autumn Budget 2017, where those policies have a fiscally significant impact on the
public finances. These costings are all submitted to the independent Office for
Budget Responsibility (OBR) for their certification, though as the OBR have set out in
the Economic and Fiscal Outlook (EFO) a small number of measures were not able to
be certified. This publication is part of the government’s wider commitment to
increased transparency.
Chapter 2 presents detailed information on the main data and assumptions
underpinning the costing of policies in the Budget. Each note sets out a description
of the measure, the base, the methodology for the costing (including relevant
adjustments for behavioural responses) and highlights main areas of additional
uncertainty, beyond those inherent in the OBR’s forecast. All costings are presented
on a National Accounts basis.
Annex A sets out the indexation assumptions included in the public finances forecast
baseline, including all pre-announcements. The OBR sets out the approach they have
taken to scrutiny and certification of the costings, and highlights areas of particular
uncertainty, in Annex A of the EFO.
3
Chapter 2
Policy costings
The following are included in this chapter:
• Personal Allowance and Higher Rate Threshold: increase to £12,500 and
£50,000 for 2019-20 and 2020-21
• Fuel Duty: freeze for 2019-20
• Alcohol Duties: freeze spirits, beer and cider in 2019 and set rate for high
strength cider
• Universal Credit: £1,000 increase to work allowance
• Universal Credit: additional support for transition
• Universal Credit: revised implementation schedule
• Industrial Injuries Disablement Benefit: include Dupuytren’s contracture
• Annual Investment Allowance: temporary increase to £1m for two years
from January 2019
• Structures and Buildings Allowance: permanent capital allowance for new
structures and buildings
• Special Writing Down Allowance: align with depreciation in accounts at 6%
rate
• Local Authority Housebuilding: remove borrowing cap
• Stamp Duty Land Tax: extend First Time Buyers relief for shared ownership
properties
• Capital Allowances: discontinue enhanced allowances for energy and
water-efficient equipment
• Business Rates: one third off for retail premises up to a rateable value of
£51,000 in 2019-20 and 2020-21
• Business Rates: public lavatories relief from 2020-21
• Digital Services Tax
• Off-payroll Working: extend reforms to private sector in 2020-21, excluding
small businesses
• Corporation Tax: restrict use of carried forward capital losses from 2020-21
• Capital Gains Tax: extend Entrepreneurs’ Relief minimum qualifying period
4
• Private Residence Relief: reform lettings relief and final period exemption
from 2020-21
• VAT Registration Threshold: maintain at £85,000 for further two years
• Employment Allowance: restrict to businesses below a £100,000 employer
NICs threshold from 2020-21
• Climate Change Levy: move towards equalised gas and electricity rates
• Aggregates Levy: freeze in 2019-20
• Heavy Goods Vehicle VED: freeze in 2019-20
• Tobacco Duty: RPI plus 2ppt on all duties and additional 1ppt for hand
rolling tobacco
• Carbon Price Support: freeze rate at £18 in 2019-20 and 2020-21
• Alcohol Duty: ban post duty point dilution
• Savings: maintain thresholds for Adult ISA allowance and starting rate of
savings
• Gift Aid: increase small donation limit from £20 to £30
• Withheld Taxes: protecting your taxes in insolvency and tackling abuse
• R&D Tax Credits: preventing abuse of the SME payable credit
• VAT: ensuring proper adjustments
• Offshore: prevent profit fragmentation, extend VAT grouping rules and
preventing looping avoidance schemes
• Capital Gains Tax: tackling misuse in Entrepreneurs’ Relief
• Tuition Fees: freeze fees in September 2019
• NICs: delay NICs Bill by one year and maintain Class 2 NICS
• Childcare Vouchers: extension to the closure for new entrants to October
2018
• Fixed Odds Betting Terminals: £2 stake limit in October 2019
• Remote Gaming Duty: raise to 21% in October 2019
• Index Linked Savings Certificates: reindex at next maturity date from May
2019
• Mayoral Combined Authorities: extension of borrowing powers
5
Personal Allowance and Higher Rate Threshold: increase
to £12,500 and £50,000 in 2019-20 and 2020-21
Measure description
This measure increases the Personal Allowance (PA) to £12,500 in 2019-20 and the
Higher Rate Threshold (HRT) to £50,000, then maintains both at these levels in
2020-21 for one year, after which they both increase by Consumer Price Inflation
(CPI).
The tax base
The tax base is estimated via the HMRC Personal Tax Model (PTM) using Survey of
Personal Incomes (SPI) data for 2015-16, projected using Autumn Budget 2018
economic determinants.
Costing
The costing is estimated by applying the pre- and post-measure tax regimes to the
tax base described above. An adjustment was made to take account of the
behavioural response.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 -2,790 -1,935 -1,445 -1,605 -1,780
Areas of uncertainty
The main areas of uncertainty in this costing relate to the size of the tax base and
the behavioural response.
6
Fuel Duty: freeze for 2019-20
Measure description
This measure freezes the main rate of fuel duty at 57.95 pence per litre for 2019-20.
The tax base
The tax base is every litre of taxable fuel that is made available for use in the UK. The
projected volumes for petrol and diesel are taken directly from the HMRC fuel duty
forecasting model.
Costing
The costing is calculated by taking the forecast baseline and applying the difference
in the forecast and policy duty rates.
Behavioural responses were included to take into account the increase in
consumption in response to lower fuel price increases. For a 1% reduction in pump
prices, the model assumes a short-term 0.07% increase in the quantity of fuel
consumed, which increases to 0.13% as consumers react to the price change.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 -840 -855 -880 -910 -935
Areas of uncertainty
The main areas of uncertainty in this costing relates to the size of the tax base and
the behavioural response.
7
Alcohol Duties: freeze spirits, beer and cider in 2019 and
set rate for high strength cider
Measure description
This measure freezes duties on spirits, beer, still ciders and sparkling ciders below
5.5% Alcohol by Volume (ABV). This measure will be effective from 1 February 2019
for a one-year period.
In addition, there will be a new band for mid-strength still cider from 6.9% up to
7.5% ABV announced by the Government at Autumn Budget 2017. The new band
will be £50.71 per hectolitre.
The tax base
The tax base for these measures are alcohol clearances. For the new rate for mid-
strength cider measure more specifically, the tax base is cider clearances from 6.9%
up to 7.5% ABV. Alcohol duty is payable on an alcohol product at the point at
which it is released for consumption onto the UK market, also referred to as alcohol
clearance. Forecast annual clearances are estimated using the OBR Budget 2018
alcohol duty receipts forecast.
Costing
The costings are estimated by applying the pre- and post-measure tax rates to the
tax bases described above.
For both measures a behavioural adjustment is made to take into account changes
in the consumption of alcohol in response to a price change. The impact depends
on the proportion of the alcohol price which is tax, determined by the type of
alcohol, price and where it is consumed. The elasticities used are published in HMRC
Working Paper 16 ‘Estimation of price elasticities of demand for alcohol in the UK'.
For the new band for mid-strength still cider an adjustment is also made for
manufacturers reformulating their drinks.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact -35 -165 -175 -175 -180 -185
Areas of uncertainty
The main uncertainty in these costing relates to the size of the behavioural response.
In addition for the cider measure there is also uncertainty relating to the size of the
tax base.
8
Universal Credit: £1,000 increase to work allowance
Measure description
This measure provides a fixed cash increase of £1000 to Universal Credit (UC) work
allowances. The work allowances are the amount that can be earned before the UC
taper rate applies. This measure will be effective from April 2019.
The cost base
The cost base is estimated using the Department for Work and Pensions’ Integrated
Forecasting Model and Policy Simulation Model.
Costing
The costing is estimated by calculating the difference between the pre- and post-
measure Universal Credit marginal expenditure.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 -545 -865 -1,130 -1,400 -1,695
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the behavioural response.
9
Universal Credit: additional support for transition
Measure description
People who receive the Severe Disability Premium (SDP) and who would have
naturally migrated to Universal Credit (UC) will now only move to UC when they can
receive transitional protection. This measure will be effective from January 2019.
Tax Credits claimants with capital in excess of UC’s £16,000 capital limit (who are
not otherwise eligible for UC) will now have their transitional protection and UC
eligibility time-limited to 12 months from the point at which they manage-migrate
to UC. This measure will be effective from July 2019.
Income Support, Jobseeker’s Allowance (Income-Based), and Employment Support
Allowance (Income-Related) claimants will continue to receive support for a
fortnight during their transition to UC. This measure will be effective from July 2020.
The Minimum Income Floor (MIF) will now apply to all gainfully self-employed UC
claimants after a 12-month grace period, whereas previously only certain claimants
received a start-up/grace period. This measure will be effective from September
2020 for claimants joining UC as a result of a change of circumstance and from July
2019 for those who are moved to UC by DWP.
From 6 April 2017, families in Child Tax Credit or UC are no longer paid a child
element for a third or subsequent child born on or after that date unless they are
eligible for an exception. There are a number of exceptions to this policy, including
third or subsequent children being looked after in non-parental care (NPC)
arrangements, and adopted children. This measure extends these two exceptions to
families with third or subsequent children in cases where the children adopted or in
NPC arrangements are the first or second children in the family. This measure will
apply from November 2018.
This package also reinstates the automatic entitlement for housing support for 18-
21-year olds. This measure will be effective from December 2018.
The cost base
The cost base is estimated using DWP’s Integrated Forecasting, Policy Simulation,
and Transitional Protection Models; Employment Support Allowance payment data;
DWP Management Information; DWP’s Single Housing Benefit Extract, and HM
Revenue and Customs’ Tax Credits earnings data and Tax Credits Expenditure
Forecast Model.
Costing
The costings are estimated by calculating the difference between the relevant pre-
and post-measure forecasts.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
10
Exchequer impact -35 -90 -170 -255 -240 -205
Areas of uncertainty
The main area of uncertainty in these costings relates to the uptake of different
benefits, and these measures remain subject to the sampling uncertainty that
underpins DWP’s wider UC modelling architecture.
11
Universal Credit: revised implementation schedule
Measure description
Policy changes to Universal Credit (UC) have necessitated an update to the schedule
for Managed Migration, which is the process by which the Department for Work
and Pensions (DWP) will move people to UC from the existing benefit system. The
process will start in January 2020 and will end in June 2024 rather than September
2022, including a 6-month contingency assumed by the Office for Budget
Responsibility.
This measure delays the point at which rent support and income support for
pensioners are merged into a single benefit to October 2023. This aligns the transfer
with the full implementation of UC.
The cost base
The cost base is estimated using DWP’s Integrated Forecasting and Policy Simulation
Models, estimates of take up of income-related benefits, the Pension Credit forecast,
and the Work and Pensions Longitudinal Study.
Costing
The costing is estimated by calculating the difference between the pre- and post-
measure Universal Credit marginal expenditure forecast.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 -95 +320 +845 +745 +250
Areas of uncertainty
The main areas of uncertainty in this costing relate to the uptake of UC.
12
Industrial Injuries Disablement Benefit: include
Dupuytren’s contracture
Measure description
This measure adds Dupuytren’s contracture to the list of prescribed diseases for
which Industrial Injuries Disablement Benefit is payable. This measure will be
effective from April 2019.
The cost base
The cost base consists of the pre-measures forecast for total expenditure on
Industrial Injuries Disablement Benefit, at Budget 2018.
Costing
The costing is estimated by applying to the cost base an assumed prevalence rate
and average award amount (determined by the severity of Dupuytren’s contracture)
for claims that will become eligible following implementation of this measure.
The costing accounts for some behavioural response whereby eligible individuals
already in receipt of income-related benefits will not make an Industrial Injuries
Disablement Benefit claim for Dupuytren’s contracture - otherwise, these individuals
would experience no increase in welfare payments despite undergoing an additional
claim process and assessment.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 0 -5 -5 -5 -5
Areas of uncertainty
The main area of uncertainty in this costing relates to the take-up of Industrial
Injuries Disablement Benefit.
13
Annual Investment Allowance: temporary increase to
£1m for two years from January 2019
Measure description
This measure temporarily increases the Annual Investment Allowance to £1,000,000
from 1 January 2019 for a two-year period. From 1 January 2021 the threshold will
revert to the permanent £200,000 level.
The Annual Investment Allowance (AIA) provides businesses with a 100% tax
deduction on investment up to a limit.
The tax base
The tax base is qualifying expenditure in excess of the baseline AIA threshold
(£200,000).
Costing
The costing is projected to the scorecard horizon using OBR’s private non-financial
companies GFCF forecast determinant (ICC), adjusted to exclude North Sea
investment.
The OBR have made an adjustment to their investment forecast as a result of this
measure.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact -215 -600 -425 +140 +185 +155
Areas of uncertainty
The main areas of uncertainty in this costing relate to the size of the tax base and
the behavioural response.
14
Structures and Buildings Allowance: permanent capital
allowance for new structures and buildings
Measure description
This measure introduces a 2% capital allowance for qualifying expenditure made on
structures and buildings.
The measure will be effective from 29 October 2018.
The tax base
The tax base is all new expenditure on structures and buildings, on or after 29
October 2018. The tax base is estimated using ONS construction data on new
expenditure in the private sector to derive new expenditure on structures and
buildings made in 2016. This is grown in line with RPI (as forecast by the OBR at
Budget 2018) to project across the scorecard period.
Costing
Capital allowances are calculated by applying a 2% straight line basis to all
qualifying expenditure. A small behavioural adjustment is also made. The OBR have
made an adjustment to their investment forecast as a result of this measure.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact -55 -165 -260 -365 -475 -585
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base.
15
Special Writing Down Allowance: align with depreciation
in accounts at 6% rate
Measure description
The writing down allowance rate for the special pool of capital allowances will be
reduced from 8% to 6% from April 2019.
The tax base
The tax base is derived using Corporation Tax returns data and self-assessment data
for the amount of qualifying special rate expenditure claimed by companies and
unincorporated businesses. The data is 2016-17 data, which is the latest outturn
data currently available. This is grown in line with the OBR business investment
determinants which have been adjusted by the OBR for this measure.
Costing
The costing is the difference between the pre- and post- measure tax rates. No
behavioural impact is assumed.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact +75 +250 +360 +325 +315 +305
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base.
16
Local Authority Housebuilding: remove borrowing cap
Measure description
This measure will remove Housing Revenue Account (HRA) borrowing caps for local
authorities. This will affect local authorities in England and Wales.
This measure will be effective from 29 October 2018 in England. The Welsh
Government is taking immediate steps to lift the cap in Wales.
The cost base
The cost base consists of the OBR forecast for Housing Revenue Account income
and expenditure. This costing assumes that the base includes the impact of the £1
billion uplift in borrowing caps announced at Autumn Budget 2017 (this borrowing
was to begin in 2019-20 but the bidding process for it has been superseded by this
policy).
Costing
The costing estimates the additional local authority (LA) capital expenditure financed
by new borrowing. Small impacts are estimated on local authority rental income and
local authority expenditure as a result of the additional borrowing.
There is no static impact estimated from lifting the HRA borrowing cap. The impacts
are estimated purely as a result of the behavioural response of LAs to the lifting of
the borrowing caps.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-23
Exchequer impact -95 -385 -850 -855 -1,235 -1,235
Areas of uncertainty
The main areas of uncertainty in this costing relate to the size of the tax base and
the behavioural response.
17
Stamp Duty Land Tax: extend First Time Buyers relief for
shared ownership properties
Measure description
This measure will extend Stamp Duty Land Tax (SDLT) first-time buyers relief so that
it applies to all first-time buyers purchasing residential property worth up to
£500,000 through a qualifying shared ownership scheme.
This measure will be effective from 29 October 2018.
The relief will also apply to shared ownership property buyers who have already paid
SDLT on the initial equity stake and rental amount since the introduction of the relief
on 22 November 2017. They will have a year to make a backdated claim for the
relief.
The tax base
The tax base is the Continuous Recording of Social Housing Letting and Sales (Core)
dataset which contains information on shared ownership sales to first time buyers in
England. The Core dataset is owned by the Ministry of Housing, Communities and
Local Government (MHCLG).
Costing
The costing is estimated by applying the pre- and post-measure tax regimes to the
tax base described above. The costing is grown in line with OBR’s forecast for
residential SDLT receipts and also reflects expected repayment of SDLT for backdated
relief claims.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact neg -5 neg neg neg -5
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base.
18
Capital Allowances: discontinue enhanced allowances for
energy and water-efficient equipment
Measure description
This measure will end the first-year allowance (FYA) for energy-efficient and
environmentally-beneficial products, including the associated first-year tax credit
(FYTC). These changes will be effective from April 2020.
The tax base
The tax base is the total estimated qualifying expenditure for all the technologies
and products.
Costing
The costing is projected using OBR’s private non-financial companies forecast
determinant, adjusted to exclude the North Sea investment. No behavioural impact
is assumed.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 +10 +50 +100 +80 +75
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base.
19
Business rates: one third off for retail premises up to a
rateable value of £51,000 in 2019-20 and 2020-21
Measure description
This measure grants a discount of one-third off business rates for retailers including
shops, cafes and restaurants in England with a rateable value of less than £51,000.
This measure will be effective from April 2019 for a two-year period.
The tax base
The tax base consists of the total rateable value of retail properties with a rateable
value below £51,000 in England, multiplied by the business rates multipliers. The
forecast 2020-21 multiplier is the 2019-20 multiplier uprated by the OBR Budget
2018 CPI inflation forecast
Costing
The tax base divided by three is taken as a high estimate for the static costing of the
discount.
It is adjusted down using experience from a similar relief scheme for retailers in
2015-16, which showed that actual cost was lower than estimated cost.
Two further adjustments are made to the static cost:
• business tax adjustments: business rates are deductible for Corporation Tax
for companies and Income Tax for the self-employed
• Barnett consequential: business rates are devolved to Scotland, Wales, and
Northern Ireland
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact +10 -490 -450 +45 -15 0
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base.
20
Business rates: public lavatories relief from 2020-21
Measure description
This measure grants 100% business rates relief to public lavatories in England. This
measure will be effective from April 2020.
The tax base
The tax base is the total rateable value of all public lavatories in England, multiplied
by the forecast 2020-21 business rates multiplier. It is grown over the forecast using
the OBR Budget 2018 CPI inflation forecast, which is used to uprate the business
rates multipliers annually.
Costing
The static costing is the tax base described above.
Two further adjustments are made to the static cost:
• business tax adjustments: business rates are deductible for Corporation Tax
for companies and Income Tax for the self-employed
• Barnett consequential: business rates are devolved to Scotland, Wales, and
Northern Ireland
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 0 -5 -5 -5 -5
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base.
21
Digital Services Tax
Measure description
This measure will impose a tax of 2% on revenues attributable to specific digital
business activities, where those revenues are linked to the participation of UK users.
The tax will apply to all businesses regardless of whether they have an existing UK
taxable presence. A business will only be subject to the tax when it exceeds two
thresholds:
(a) £500 million global revenues from a business activity in scope of the tax
(b) £25 million revenues from a business activity in scope of the tax, where
those revenues are linked to the participation of UK users
The first £25 million of revenues in scope of the DST will not be taxable.
The measure will also include a safe harbour provision that will allow businesses
with very low profit margins to make an alternative calculation of their tax liability.
This measure will take effect from 1 April 2020.
The tax base
The tax base consists of all revenues attributable to specific digital business activities,
where those revenues are linked to the participation of UK users.
The tax base has been established by collecting data on the revenues generated by
the specific digital business activities in scope of the measure. The tax base is
projected over the scorecard period using a combination of the historical UK
revenue growth of groups in scope and the OBR’s non-North Sea gross trading
profits determinant.
Costing
The costing is estimated by applying the policy regime to the tax base described
above. The costing takes account of the potential behavioural responses of groups
to this measure.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 +5 +275 +370 +400 +440
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base.
22
Off-payroll Working: extend reforms to private sector in
2020-21, excluding small businesses
Measure description
The off-payroll working rules were introduced in 2000. They ensure that individuals
who work through a company (usually a personal service company (PSC)), who
would be regarded as employees if directly engaged, pay broadly the same
employment taxes as if they were employed.
Reform was introduced in April 2017 to address non-compliance in the public
sector, shifting responsibility for determining whether the rules apply, from the
individual’s PSC to the public authority engaging them. This measure extends similar
reform to engagements with medium-sized and large-sized businesses in the private
sector. The existing rules will continue to apply for engagements with small
businesses.
This measure will be effective from April 2020.
The tax base
The tax base consists of the taxable income of PSCs in scope of the off-payroll
working rules, which contract with medium and large-sized businesses in the private
sector. This is estimated using HMRC administrative data for 2016-17. The tax base
is grown over the forecast period using the OBR’s incorporation forecast.
Costing
The costing is the increase in net tax paid as income shifts from largely dividend/
corporation tax treatment to Pay-As-You-Earn income tax and national insurance
contributions.
The costing accounts for behavioural effects such as taxpayers shifting their
structure to mitigate tax changes.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact -5 -150 +1,165 +595 +635 +725
Areas of uncertainty
The main areas of uncertainty in this costing relate to the size of the tax base and
the behavioural response.
23
Corporation Tax: restrict use of carried forward capital
losses from 2020-21
Measure description
This measure will restrict the use of company capital losses brought forward from
previous accounting periods, such that only 50% of annual capital gains can be
sheltered by carried-forward capital losses. It is an extension of Corporate Income
Loss Restriction (CILR), which was introduced at Budget 2016. The CILR’s £5 million
annual allowance will be extended to this measure so that it applies across income
losses and capital losses.
The measure will be effective from 1 April 2020.
The tax base
The tax base for this measure is derived from corporation tax (CT) returns data for
2016-17 which is the latest data available.
Costing
The costing is the tax base (i.e. the chargeable gains that it is estimated will be
exposed to tax due to this measure) multiplied by each year’s projected CT rate.
The costing applies an unwind factor to take account of the fact that restricted
losses can be used in later periods.
The costing takes account of potential behavioural responses to the measure,
including companies using their losses before implementation or changing their
behaviour post implementation.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 +25 +110 +140 +140 +125
Areas of uncertainty
The main areas of uncertainty in this costing relate to the size of the tax base and
the behavioural response. This measure includes an anti-avoidance and anti-
forestalling rule to address adverse behavioural responses.
24
Capital Gains Tax: extend Entrepreneurs’ Relief minimum
qualifying period
Measure description
For Entrepreneurs' Relief to be available on the disposal of a business asset, certain
conditions must be met for a minimum period by the claimant. The measure
increases this minimum period from one year to two years.
This measure will be effective from 6 April 2019.
Where the claimant's business has ceased before Budget day 2018 the existing one-
year qualifying period will continue to apply.
The tax base
The tax base is all gains charged to Capital Gains Tax on assets that qualify for
Entrepreneurs’ Relief and which have met the qualifying conditions for between one
and two years.
Costing
The costing is estimated by applying pre- and post-measure tax regimes to the tax
base described above. An adjustment is made for taxpayers holding onto their assets
for longer in order to meet the new criteria.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 +5 +10 +75 +80 +90
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base and
the behavioural response.
25
Private Residence Relief: reform lettings relief and final
period exemption from 2020-21
Measure description
This measure will restrict two ancillary reliefs within private residence relief (which
exempt main residences from capital gains tax (CGT)). Final period exemption will be
reduced from 18 months to 9 months. Lettings relief will be reformed so that it only
applies in circumstances where the owner of the property is in shared occupancy
with a tenant.
This measure will be effective from April 2020.
The tax base
The tax base consists of gains made on residential property that are currently
relieved by final period exemption and lettings relief, where CGT is now liable upon
disposal.
Costing
The costing is estimated by multiplying the affected tax base by CGT rates for
residential property. The behavioural response of those affected by the measure is
also included in the costing.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 +15 +50 +120 +135 +150
Areas of uncertainty
The main areas of uncertainty in this costing relate to the size of the tax base and
behavioural response.
26
VAT Registration Threshold: maintain at £85,000 for a
further two years
Measure description
This measure maintains the VAT registration threshold at £85,000 in 2020-21 and
2021-22. This measure will be effective from 1 April 2020.
The tax base
The tax base is made up of the taxable outputs less inputs, of firms with turnover
above the VAT registration threshold.
Costing
The costing estimates the difference between the number of businesses who will be
registered for VAT in the pre-measures forecast baseline, and the number who will
be registered post-measure. The costing then estimates the impact on VAT revenue
that would result from this change in number of firms above the VAT registration
threshold.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 0 +60 +130 +145 +150
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base.
27
Employment Allowance: restrict to businesses below a
£100,000 employer NICs threshold from 2020-21
Measure description
The Employment Allowance (EA) entitles eligible businesses and charities to a
reduction of up to £3,000 from their annual employer National Insurance
contributions (NICs) bill.
This measure prevents employers with a secondary Class 1 NICs bill equal to or
above £100,000 in the previous tax year, before the EA is applied, from claiming the
EA.
This measure will be effective from April 2020.
The tax base
The tax base consists of the Employment Allowance claims of businesses with an
employer NICs bill equal to or above £100,000 in the previous tax year.
Costing
The costing is estimated using HMRC administrative data. HMRC’s Real Time Pay As
You Earn (PAYE RTI) records are used along with the OBR’s Budget 2018 economic
determinants for wages and employment, to forecast employer NIC liabilities for
businesses.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 0 +225 +260 +290 +320
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base.
28
Climate Change Levy: move towards equalised gas and
electricity rates
Measure description
This measure announces main rates of the Climate Change Levy (CCL) for 2020-21
and 2021-22. The electricity rate will be lowered, and the gas rate will increase, in
both years so the gas rate reaches 60% of the electricity rate in 2021-22.
This measure will be effective from April 2020.
The tax base
The tax base consists of energy (electricity, natural gas, solid fuels and liquid
petroleum gas) supplied to non-domestic users in the UK and is estimated using
BEIS data on historical and forecast energy use.
Costing
The costing is calculated by multiplying the tax base by the difference between the
pre- and post-measure tax rates.
The tax rates are adjusted by increasing CCL rates for gas and reducing CCL rates for
electricity, with solid fuel rates proportionately adjusted in line with gas rates. No
changes are made to LPG rates, as these were frozen at Autumn Budget 2017 for
2020-21 and 2021-22. This costing assumes that after 2021-22 all fuel rates are
uprated by RPI, but rates from 2022-23 will be announced at future fiscal events.
Behaviour adjustments are then made to account for the change in demand as a
result of the change in prices due to the policy.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 0 neg neg neg +5
Areas of uncertainty
The main areas of uncertainty in this costing relate to the size of the tax base and
the behavioural response.
29
Aggregates Levy: freeze in 2019-20
Measure description
This measure freezes the aggregates levy at £2 per tonne for 2019-20.
This measure takes effect from 1 April 2019.
The tax base
The tax base is the tonnage of rock, sand and gravel commercially exploited in the
UK. The tax base is estimated using the OBR Budget 2018 forecast for aggregates
output. This forecast is dependent on the lagged duty rate, seasonal variation and a
time trend.
Costing
The costing is estimated by applying the pre- and post-measure tax rates to the tax
base described above. The behavioural impact is negligible as taxable aggregates are
relatively inelastic.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 -10 -15 -15 -15 -15
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base.
30
Heavy Goods Vehicle VED: freeze in 2019-20
Measure description
This measure freezes Heavy Goods Vehicle (HGV) Vehicle Excise Duty (VED) rates for
2019-20 at 2018-19 levels.
This measure will be effective from 1 April 2019.
The tax base
The tax base is the stock of vehicles liable for HGV VED and is estimated using the
latest stock position from the OBR certified VED forecasting and costing model.
Costing
The cost is calculated by multiplying the baseline stock forecast by the policy rates
and then subtracting the baseline revenue.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 -5 -5 -10 -10 -10
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base.
31
Tobacco Duty: RPI plus 2ppt on all duties and additional
1ppt for hand rolling tobacco
Measure description
This measure increases the specific duty on Hand Rolling Tobacco (HRT) by 1
percentage point above the pre-announced duty rate increase (i.e. RPI+2%+1%). It
was previously announced at Autumn Budget 2017 that tobacco duties would rise
by RPI+2% for the duration of the parliament.
This measure will be effective from 6pm on 29 October 2018.
The tax base
The tax base is composed of tobacco cleared into the UK market. The tax base is
forecast in line with the OBR Autumn Budget 2018 forecast for tobacco duty
revenues. It includes announced policy (RPI+2% increases through to the end of
Parliament, as announced at Autumn Budget 2017).
Costing
The costing is determined by applying the new duty rates to the tax base. The
costing includes a behavioural effect to account for the reduction in consumption
resulting from higher prices.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 +5 +5 +5 +5 +5
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the behavioural
response.
32
Carbon Price Support: freeze rate at £18 in 2019-20 and
2020-21
Measure description
Carbon Price Support (CPS) rates of the Climate Change Levy (CCL) provide a ‘top
up’ to the EU Emissions Trading Scheme (EUETS) carbon price for energy generators.
This measure will maintain CPS rates at £18 in 2020-21.
This measure will be effective from April 2020.
The tax base
The tax base is made up of supplies of fossil fuel for most electricity generators in
Great Britain.
It is estimated by BEIS’s Dynamic Dispatch Model (DDM).
Costing
The static costing is calculated by multiplying the tax base by the difference between
the pre- and post-measure tax rates.
The behavioural response is estimated to be negligible and no adjustment has been
made.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 0 -15 -15 -20 -20
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base.
33
Alcohol Duty: ban post duty point dilution
Measure description
Post Duty Point Dilution (PDPD) is a practice that enables some alcohol producers to
reduce the excise duty they pay by diluting the product after duty has been paid. As
wine and made-wine is taxed in bands this leads to a tax saving compared to that
payable if calculated on the volume of the final retail product.
This measure will lead to abolition of the practice and will therefore raise tax
revenues.
This measure will be effective from April 2020.
The tax base
The tax base is all wine and made-wine producers that engage in PDPD.
Costing
The costing applies the pre- and post- measures’ duty rates to the tax base.
Behavioural adjustments are made to account for: the increase in the price of
diluted product, forestalling, and changes to producer behaviour.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 +65 -15 +85 +85 +90
Areas of uncertainty
The main areas of uncertainty in this costing relate to the size of the tax base and
the behavioural response.
34
Savings: maintain thresholds for Adult ISA allowance and
starting rate for savings
Measure description
This measure maintains the adult ISA limit at £20,000, and maintains the Starting
Rate for Savings (SRS) band at £5,000 in 2019-20. Both the adult ISA limit and the
SRS are then forecast to increase in line with Consumer Price Index (CPI) thereafter.
The SRS band is a £5,000 band which sits above the Personal Allowance (PA).
Savings income in the SRS band is not subject to tax. All savings income from
subscriptions to ISAs are also not subject to tax.
The tax base
The tax base is established by using the latest 2015-16 Survey of Personal Incomes
(SPI). This is then matched with information on ISA subscriptions, and projected in
line with OBR forecasts.
Costing
The costing is estimated by applying the pre- and post-measure tax regimes to the
tax base described above.
A small adjustment for behaviour has been applied.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 neg +5 +5 +5 +10
Areas of uncertainty
The main area of uncertainty in this costing is sensitivity to future forecasts of the
return to savings.
35
Gift Aid: increase small donation limit from £20 to £30
Measure description
The measure increases the Gift Aid Small Donations Scheme (GASDS) per-donation
limit from £20 to £30. The GASDS allows charities and community amateur sports
clubs, that are registered for Gift Aid, to claim 25% on other donations which meet
certain criteria.
The measure will be effective from April 2019.
The tax base
The tax base is GASDS paid in 2017-18, the most recent complete year for which
administrative data is readily available.
Costing
The costing is the increase in donations falling under GASDS, subject to the annual
donations limit of £8,000 per organisation (or, for organisations with more than
one community building, £8,000 per community building).
Adjustments are made to allow for behavioural responses to this change.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 -5 -5 -5 -5 -5
Areas of uncertainty
The main areas of uncertainty in this costing relate to the size of the tax base and
the behavioural response.
36
Withheld Taxes: protecting your taxes in insolvency and
tackling abuse
Measure description
This measure seeks to reduce tax losses when a business goes into insolvency by
giving HMRC greater priority in recovering taxes that are temporarily held in trust by
the business on behalf of its employees and customers - PAYE, employee NICs, CIS
(Construction Industry Scheme) and VAT – ahead of some other creditors.
In addition, this measure seeks to tackle and prevent taxpayers from artificially and
unfairly avoiding tax by misusing insolvency to retain their avoidance or evasion
gains, or benefit from repeated non-payment of tax (known as ‘phoenixism’).
The tax base
The tax base for this measure consists of company insolvencies with gains resulting
from tax avoidance, evasion and phoenixism, in addition to the amount HMRC
currently writes off every year due to insolvencies.
This is estimated from HMRC operational and administrative data and is grown in
line with the Budget 2018 OBR determinant for Gross Domestic Product (GDP) at
market prices deflator.
Costing
The costing is the tax recovered from insolvencies that HMRC would not otherwise
have collected before the policy was implemented. Adjustments are made for tax
and payment timing.
The costing accounts for a behavioural response whereby the measure has a
deterrent effect on future insolvency as some taxpayers become compliant.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 +10 +65 +150 +195 +185
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base and
the behavioural response.
37
R&D Tax Credits: preventing abuse of the SME payable
credit
Measure description
The measure will introduce a limit on the amount of payable R&D tax credit that can
be claimed by a company under the SME scheme, in order to prevent fraud. The
limit will be set at 300% of the company’s total Pay-As-You-Earn (PAYE) and
National Insurance contribution (NIC) payment for the period.
This measure will be effective from 1 April 2020.
The tax base
The tax base is the R&D expenditure used to claim payable tax credits under the SME
scheme. This was estimated using published national statistics for accounting
periods ending in 2016-17, projected forward using the OBR’s business investment
determinants.
Costing
The costing uses a sample of SME payable R&D tax credit claims for 2015-16 and
2016-17 to estimate the proportion of the amount claimed that would be affected
by the limit. A behavioural adjustment is included in the costing assumption.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 0 0 +20 +45 +45
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base.
38
VAT: ensuring proper adjustments
Measure description
This measure applies VAT to full and part pre-payments for services where customers
fail to use the service, and to part pre-payments for goods where customers fail to
collect the goods. This does not affect prepayments where customers are issued a
full refund.
In addition, a loophole that currently exists under Regulation 38 of the VAT
Regulations (1995) will be closed. This Regulation allows businesses to adjust their
VAT return to reclaim VAT from HMRC where there has been a reduction in the
price of a good or service. Some businesses have been using this to make VAT
adjustments for which Regulation 38 is not intended.
The tax base
The tax base is the amount paid for unfulfilled supplies of goods and services and
the value of accounting adjustments made under Regulation 38.
Costing
The costing of the change in the VAT treatment of unfulfilled supplies is estimated
on a theoretical basis, using VTTL (VAT Total Theoretical Liability) methodology.
HMRC case officers have produced estimates of the value of Regulation 38
adjustments currently made which will no longer be permitted under the measure.
These estimates have been scaled up across the business population, allowing for
differential usage of the avoidance device across sectors.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact +5 +150 +200 +200 +195 +190
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base, and
the extent to which this avoidance loophole is currently being exploited.
39
Offshore: prevent profit fragmentation, extend VAT
grouping rules and prevent looping avoidance schemes
Measure description
This measure tackles offshore tax avoidance by preventing fragmentation of business
profits and the use of VAT loop avoidance schemes and by extending VAT grouping
rules.
UK businesses will be prevented from avoiding UK tax by arranging for their UK-
taxable business profits to accrue to entities resident in territories where significantly
lower tax is paid than in the UK. The taxable UK profits will instead be increased to
the actual, commercial level.
A device will also be counteracted whereby insurance providers avoid non-
recoverability of VAT on inputs by routing services supplied to UK customers
through an overseas associate. In addition, HMRC guidance will be changed to
ensure that certain services purchased by overseas members of VAT groups are
subject to UK VAT.
The tax base
The tax base is the tax from profit fragmentation cases in the absence of a policy
change, the overheads recharged from overseas branches to UK companies in
groups with partial exemption and the costs (inputs) of insurance companies
supplying overseas services to UK customers via offshore associates.
Costing
The costing is based on internal analysis by HMRC on groups impacted by this
measure, and the estimates of loss of tax through the use of the off-shore looping
scheme. It is then assumed that in the future the majority of losses will be prevented
by this measure.
The costing also assumes HMRC will work more profit fragmentation cases, to settle
these cases more quickly, and that they will have a higher average yield than at
present.
An adjustment is made to allow for businesses changing structure in response to the
measure.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact neg +65 +65 +75 +95 +100
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base and
the behavioural response.
40
Capital Gains Tax: tackling misuse in Entrepreneurs’ Relief
Measure description
For Entrepreneurs' Relief to be available on the disposal of shares or securities, the
claimant must have at least 5% of the shares and voting rights in the company. This
measure introduces equivalent 5% requirements for the claimant’s entitlement to
the profits and assets of the company.
The measure will be effective from 29 October 2018.
The tax base
The tax base is gains charged to Capital Gains Tax that meet all of the following
criteria:
• gains on shares currently charged at the ER rate of Capital Gains Tax
• the taxpayer is by virtue of their shareholding entitled to receive either less
than 5% of the distributable profits or less than 5% of the net assets of
the company available for distribution on winding up
Costing
The costing is estimated by applying pre- and post-measure tax regimes to the tax
base described above. This is then adjusted for anticipated behaviour.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 +5 +10 +10 +10 +15
Areas of uncertainty
The main areas of uncertainty in this costing relate to the size of the tax base and
the behavioural response.
41
Tuition Fees: freeze fees in September 2019
Measure description
This measure freezes the maximum fee limits that Approved (Fee Cap) providers can
charge for undergraduate courses and the maximum fee loans made available to
students in Academic Year 2019-20 at the same levels that apply to HEFCE funded
institutions for Academic Year 2018-19 (the maximum limits being £9,250 for a full-
time course and £6,935 for a part-time course). Lower fee and fee loan limits, where
applicable, have also been frozen at 2018-19 levels in 2019-20.
The cost base
The cost base for this measure are forecasts of Plan 2 (post-2012) higher education
loan outlay, repayments, interest charges and fiscal write-offs.
These forecasts have been produced using the Department for Education student
loan outlay and repayment models. Detailed information about the model can be
found in the technical notes of the Student loan forecasts, England: 2017 to 2018
publication here: https://www.gov.uk/government/statistics/student-loan-forecasts-
england-2017-to-2018
Costing
The static costing is estimated by applying the pre- and post-measure maximum fee
limits to the cost base described above. No behavioural impact is assumed.
Exchequer Impact (£m)
2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
Exchequer impact 0 neg -10 -20 -30 -40
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the behavioural
response.
42
NICs: delay NICs Bill by one year and maintain Class 2
NICs
Measure description
The government will not proceed with the abolition of Class 2 National Insurance
contributions (NICs) during the Parliament.
This measure also postpones the introduction of employer Class 1A National
Insurance contributions (NICs) to all termination payments over £30,000 where
income tax is currently due by one year (to April 2020).
The tax base
The tax base for Class 2 NICs is estimated using HMRC’s Personal Tax Model using
data from the 2015-16 Survey of Personal Incomes. The data is projected forward
using the latest OBR Budget 2018 determinants.
The tax base for termination payments is those exceeding the £30,000 tax
threshold. It is estimated using data from the 2016-17 Family Resources Survey (FRS)
projected forward using the latest OBR Budget 2018 determinants.
Costing
The Class 2 NICs costing is estimated using administrative data on UK taxpayer
numbers and income. The pre- and post-measure tax regimes are applied to the tax
base described above to estimate the impact of the measure in terms of the
difference in income tax and NICs liabilities. The costing also includes the reversal of
the assumed behavioural response that would have resulted from the abolition of
Class 2 NICs.
The termination payments costing assumes those payments exceeding £30,000 in
2019-20 will no longer be subject to employer NICs. A number of behavioural
adjustments are then made including a forestalling assumption.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact -5 +180 +395 +370 +335 +310
Areas of uncertainty
The main area of uncertainty in these costings relates to the size of the tax bases
and the behavioural responses.
43
Childcare Vouchers: extension to the closure for new
entrants to October 2018
Measure description
This measure kept childcare vouchers open to new entrants for a further six months
until October 2018. This allowed more time for Tax-Free Childcare to bed in and for
families to understand their entitlement.
The tax base
The tax base for the costing is the number of people that have now taken up
childcare vouchers as a result of the extension.
Costing
The costing results from people who were previously not going to take up vouchers
because the scheme was due to close to new entrants now deciding to join a
voucher scheme because of the extension.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact -45 -55 -50 -40 -25 -10
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the tax base.
44
Fixed Odds Betting Terminals: £2 stake limit in October
2019
Measure description
This measure will cap the maximum stake playable on B2 gaming machines at £2
from October 2019.
The tax base
The tax base is the gross gambling yield (GGY) of every B2 machine in the UK. GGY
is calculated as the total amount staked on these machines, minus the prizes paid
out.
Costing
The costing is calculated by removing all stakes above £2 (and their respective GGY)
from the total GGY. An adjustment was also made to take account of a behavioural
response.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact 0 -120 -245 -255 -260 -270
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the behavioural
response.
45
Remote Gaming Duty: raise to 21% in October 2019
Measure description
This measure increases the Remote Gaming Duty (RGD) rate from 15% to 21%, from
October 2019.
The tax base
The tax base for this measure is the latest Budget 2018 OBR forecast for RGD yield.
It also includes an allowance for increased online gaming as a result of the change
to Fixed Odds Betting Terminals (FOBT) stakes.
Costing
The static yield is estimated by applying the new tax rate to the tax base and then
calculating the difference when compared to the forecast yield under the current
regime.
A behavioural adjustment is made to take into account changes in spending on
remote gaming in response to this change, and to account for changes in operator
behaviour.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact +0 +130 +255 +265 +280 +295
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the behavioural
response.
46
Index Linked Savings Certificates: reindex at next maturity
date from May 2019
Measure description
This measure ensures that National Saving & Investment (N&SI) customers with
maturing Index-linked Savings Certificates who choose to reinvest their funds into a
new term will receive interest based on the Consumer Prices Index (CPI) and not
Retail Prices Index (RPI).
This measure will be effective from 1 May 2019.
The cost base
The cost base is the forecast value of interest payments on the stock of Index-linked
Savings Certificates.
Costing
The static costing is estimated by calculating the reduction in interest payments by
re-indexing maturing Index Linked Savings Certificates from the Retail Prices Index
(RPI) to the Consumer Prices Index (CPI).
An adjustment is applied to take account of the behavioural response.
Exchequer Impact (£m)
2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
Exchequer impact 0 +35 +85 +150 +165 +175
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the behavioural
response, though sensitivity analysis suggests that variations on this will not make a
large change to the level of savings made.
47
Mayoral Combined Authorities: extension of borrowing
powers
Measure description
At Autumn Statement 2016 the government announced that Mayoral Combined
Authorities (MCAs) would be given powers to borrow for their new functions,
subject to debt agreement with HM Treasury. Previously MCAs could only borrow
for transport purposes.
These new powers came into effect in May 2018.
The cost base
The cost base consists of all proposed borrowing by MCAs, as set out to HM
Treasury as part of the debt cap agreement process.
Costing
The static costing is estimated by isolating all new borrowing, which is all borrowing
for functions other than transport. The costing accounts for a behavioural response
where an underspend assumption is applied to plans, as well as a time delay.
Exchequer Impact (£m)
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Exchequer impact -45 -160 -245 -205 -70 0
Areas of uncertainty
The main area of uncertainty in this costing relates to the size of the behavioural
response.
48
49
Annex A
Indexation in the public finance forecasts baseline
The following table shows the indexation assumptions that have been included in the public finances forecast baseline, including all pre-announcements, for
Budget 2018 policy costings. Unless otherwise stated, changes are assumed to take
place in April each year and tax raises are fixed.
Forecast area Element Default indexation assumed in the
baseline
Pre-announced policy changes from
2019-20 onwards
Income Tax Personal Allowance Increase the personal allowance by CPI, rounded up to the nearest £10
Basic Rate Limit Increase the basic rate limit by CPI, rounded to the
nearest £100
Personal savings allowance
Fixed at £1,000 for basic rate taxpayers
and £500 for higher rate taxpayers
Starting rate limit for savings income
CPI, rounded up to the nearest £10
Threshold for additional rate
Fixed at £150,000
Income limit for tapered withdrawal
of personal allowances
Fixed at £100,000
Pensions Tax Relief – annual allowance
Fixed at £40,000
Pensions Tax Relief – tapered annual
allowance
Annual allowance is tapered for
individuals with income over
£150,000 (including pension
contributions)
50
Pensions Tax relief – Money Purchase
Annual Allowance
Fixed at £4,000
Pensions Tax Relief – Lifetime Allowance
September’s CPI, rounded up to the
nearest £100
Individual Savings Accounts – annual
subscription limit
In line with CPI, rounded to the
nearest £120
Individual income threshold for high
income child benefit – tax charge
Fixed at £50,000
Marriage tax allowance
Fixed at 10% of the personal allowance
NICS Lower earnings limit CPI, rounded down to the nearest £1pw
Primary threshold / lower profits limit
CPI, rounded to the nearest £1pw.
Annual PT/LPL is weekly multiplied by
52
Secondary threshold CPI, rounded to the nearest £1pw
Upper earnings limit / upper profit limit
Align with income tax Higher Rate
Threshold
Small profits
threshold
CPI, rounded up to
the nearest £10
Contribution rates Fixed percentage, apart from Class 2 and Class 3 weekly rates which rise by
CPI, rounded to the nearest 5p
Employment allowance
Fixed at £3,000
Capital gains tax Main annual exempt
amount
CPI, rounded up to
the nearest £100
Annual exempt
amount for trustees
Half of the main
annual exempt
amount
Lifetime allowance
for entrepreneur’s
relief
Fixed at £10 million
Inheritance tax Nil rate band CPI, rounded to the
nearest £1,000
Freeze in the nil-rate
band until 2020-21
(freeze at £325,000)
Working-age social
security benefits and
All main rates September’s CPI The personal
allowances of the
51
payments:
Jobseeker’s
Allowance; Income
Support;
Employment and
Support Allowance;
Housing Benefit
working-age
benefits; the ESA
WRAG component
and its UC
equivalent; and
Local Housing
Allowances are
frozen for four years
from 2016/17 to
2019/20 inclusive.
The disability and
carer premiums in
JSA, ESA, IS and
Housing Benefit are
exempt from this
four year uprating
freeze.
Disability Benefits:
Disability Living
Allowance;
Attendance
Allowance; Carer’s
Allowance;
Incapacity Benefit;
and ESA support
group element and
its UC equivalent
All main rates September’s CPI
Statutory payments:
Statutory Maternity
Pay; Adoption Pay;
Paternity Pay; Shared
Parental Pay; Sick
Pay; Maternity
Allowance; and
Guardian’s
Allowance
All main rates September’s CPI
Basic State Pensions All categories Highest of earnings,
September’s CPI or
2.5% rounded to the
nearest 5p
Additional State
Pension
All categories September’s CPI
rounded to the
nearest 1p
New State Pension All categories Highest of earnings,
September’s CPI or
2.5% rounded to the
nearest 5p
52
Pension Credit Guarantee Credit Earnings growth
rounded to the
nearest 5p
Savings Credit September’s CPI
rounded to the
nearest 1p
Child Tax Credit Family element Fixed at £545 per
year
Child element September’s CPI,
rounded to the
nearest £5
Four-year uprating
freeze from 2016-17
Disabled and
enhanced disabled
child elements
September’s CPI,
rounded to the
nearest £5
Working Tax Credit Basic element, 30-
hour element,
second adult
elements, lone
parent element
September’s CPI,
rounded to the
nearest £5
Four-year uprating
freeze from 2016-17
Disability elements September’s CPI,
rounded to the
nearest £5
Maximum eligible
childcare costs (for
1and 2 +children)
Fixed at 70% of
actual childcare
costs of up to £175
a week for one child
or £300 a week for
two or more
children
Child benefit Eldest (or only) child
and subsequent
children amounts
September’s CPI,
rounded to the
nearest 5p
Four-year uprating
freeze from 2016-17
Stamp duties Stamp duty land tax
thresholds for
residential property
Fixed at £125,000,
£250,000, £925,000
and £1,500,000
Stamp duty land tax
thresholds for non-
residential freehold
and leasehold
premium
transactions
Fixed at £150,000
and £250,000
Stamp duty land tax
thresholds for non-
residential leasehold
rent transactions
Fixed at £150,000
and £5,000,000
53
Climate change levy Levy amount RPI
Aggregate levy Levy amount RPI
Landfill tax Tax rates RPI, rounded to the
nearest 5p
Vehicle excise duty Duty rates RPI, rounded to the
nearest £1 or £5
Air passenger duty Duty rates RPI, rounded to the
nearest pound
Tobacco duties Duty rate on all
tobacco products
RPI
Alcohol duties Beer, wine, spirits
and cider duties
RPI, change takes
place on 1 February
Fuel duties Duty rates RPI
VAT VAT registration
threshold
RPI, rounded to the
nearest £1,000
Gaming duty Gross gaming yield
bands
RPI, rounded to the
nearest £500
Freeze from April
2018
Business rates Business rates
multiplier
CPI
HM Treasury contacts
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HM Treasury
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Tel: 020 7270 5000
Email: [email protected]